18 April 2014

Why is North Korea poor?

"North Korea is poor because the sanctions are working"

Not even close. North Korea is poor because of an outmoded economic policy and self-imposed isolation from the world. The latest round of UN and US sanctions, implemented in March 2013, only target the elite. They ban the export of luxury goods and clamp down on individuals and companies that are financing proliferation activities. It's safe to say that the average North Korean does not own a yacht or wear a Rolex.

Blame lies with five bad decisions North Korea has made in the management of its economy. First, in the aftermath of the Korean War, Kim Jong Un's grandfather -- President Kim Il Sung -- focused exclusively on heavy industry development and the military while expecting the country to be self-sufficient in agriculture. In a country that only has 20 percent arable land, that was a huge mistake. Second, rather than seek technologies and innovations like the Green Revolution that helped nations like India make enormous gains in agricultural productivity in the 1960s and 1970s, the North tried to substitute longer work hours and revolutionary zeal. Given the broken infrastructure, this was like squeezing blood from a stone. Third, rather than trade with the outside world, the North went deeply into debt in the 1970s, borrowing and then defaulting on hundreds of millions of dollars in loans from European countries, which forever lost them lines of credit with any country or international financial institution. Fourth, in the 1980s and 1990s, the North undertook extremely wasteful mega-projects, building stadiums, hydropower projects, and tideland reclamation projects -- most of which failed or were never completed. Finally, after the Chinese and Soviets stopping giving aid to the North at the end of the Cold War, Pyongyang relied on humanitarian assistance as a form of income, instead of trying to fix their economy.

One could not have imagined a worse economic plan. This country has allowed an ideology that prizes autarky to dictate economic decisions rather than taking advantage of the benefits of trade, technology, or innovation -- which is why North Korea is one of the only countries in the world to have suffered a famine after industrialization.

- David Kang & Victor Cha, 'Think Again: North Korea', Foreign Policy, 25 March 2013
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